FUN - Factors of Production Lesson

Factors of Production

Productive resources, also known as factors of production, are the resources used to make all goods and services. A good is a physical object like clothes or a candy bar. Services include actions one person performs for another; think of a teacher.

The four categories of resources are:

1. Natural Resources

Natural resources, or land, are any inputs found in nature that are used to produce goods and services. Some examples are wheat, iron, ore, trees, water, and animals.

2. Human Resources (Labor + Human Capital)

Human resources include labor and human capital. Labor would be a waiter or factory worker. Human capital would be the knowledge that waiter has about the daily special or the training received by the factory worker to operate a complicated machine.

3. Physical Capital

Physical capital are inputs made by people to create other goods and services. A hammer or a factory are examples of physical capital. One distinction about physical capital is you have to be able to touch it.

4. Entrepreneurship

The final resource, entrepreneurship, is the risk taker who combines the other three resources (land, labor, capital) in order to make a profit, create jobs, innovate a product or industry, and improve society.

In order to determine what category a resource belongs in, ask yourself the following questions.

Q: Is it found in nature?

A: Then it’s land.

Q: Is it a person?

A: Then it’s labor.

Q: Is it made by a person?

A: Then it’s physical capital.

Q: Is it the owner?

A: Then it’s entrepreneurship.

 

Factors of Production Lesson Interactivity

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